President Obama’s nomination of Janet Yellen signals a continuation of the Federal Reserve’s policies, economists said, including its historic efforts to keep interest rates low as a way to boost the economy.
Yellen, vice chairwoman of the Federal Reserve since 2010, is a key architect of the extraordinary steps taken by the Fed to spur the economy during a lackluster recovery marked by persistently high national unemployment.
Among those efforts was a Fed decision to announce that it would hold its benchmark short-term interest rates near zero until unemployment fell to 6.5 percent and purchase $85 billion a month in Treasury and mortgage-backed securities to drive long-term rates down as a way to spur real estate, autos, and other interest-sensitive industries.
N. Gregory Mankiw, chairman of Harvard University’s economics department, former chairman of the Council of Economic Advisers under President George W. Bush, and a key economic adviser to former presidential contender Mitt Romney, described Yellen as mild-mannered in the mold of outgoing Fed chairman Ben Bernanke.
“I don’t think we’ll see any dramatic changes,” Mankiw said. “It’s been a tough few years, and particularly in difficult times, you don’t want to hit the economy with a lot of uncertainty.”
Yellen, in a statement, called the last six years “tumultuous for the economy and challenging for many Americans.” She called Bernanke’s leadership skillful, but said too many Americans still cannot find work.
“While we have made progress, we have farther to go,” she said. “The Federal Reserve can help if it does its job effectively.”
Yellen was widely expected to be named by Obama following the decision by another leading candidate, former Treasury secretary Lawrence Summers, to withdraw from consideration last month. If confirmed by the Senate, Yellen would become the first woman to lead the Federal Reserve in its 100-year history.
Yellen would face several challenges, including steering the economy through potentially damaging political crises in Washington and eventually managing the tricky withdrawal of the central bank’s stimulus from the economy, analysts said.
With the August unemployment rate at 7.3 percent and the congressional budget stalemate threatening the economy, Yellen will not be in any rush to reduce stimulus, said Nariman Behravesh, chief economist for IHS Global Insight, a forecasting firm in Lexington.
“This is not the time to taper,” Behravesh said. “My view is that as soon as inflation starts to be a problem, she will act, but the focus will be on making sure the employment situation will improve.”
Nonetheless, Yellen must manage Fed policy makers who are divided over when to start cutting back stimulus measures. Some Fed policy makers believe the Fed should start now, arguing that the economy is strong enough and the central bank risks sparking inflation if it waits too long to act.
Local economists yesterday praised Yellen’s intellect, demeanor, and consensus-building skills. Mankiw described Yellen as a “very smart, mainstream, consensus builder.”
“She’ll have a quite calming influence on financial markets and watch her words carefully, not speak off the cuff in ways that will rattle people,” he said.
Investors also appeared to welcome Yellen’s selection. The Dow Jones industrial average closed up 26 points at 14,802.98 on Wednesday, snapping a two-day losing streak
Cathy E. Minehan, former president of the Federal Reserve Bank of Boston and now dean of the school of management at Simmons College, said few people have the institutional Fed knowledge and understanding of the challenges ahead that Yellen possesses. Before becoming Fed vice chairman, Yellen served as president of the Federal Reserve Bank of San Francisco and a member of the Fed’s board of governors. She also served as chairman of the White House Council of Economic Advisers under President Clinton.
Yellen brings a down-to-earth sensibility to the central bank, Minehan said, recalling how she took public transportation or drove herself to meetings when she was president of the San Francisco Fed, instead of using the limousines offered to Fed presidents.
“The job that Janet will face after she is confirmed, as I really believe she will be, is extraordinarily difficult,” Minehan said. “It would be unthinkable if she was not approved.”
Several economists said they did not expect her nomination to be a politically controversial, although Senate Republicans have objected to other Obama appointments to the Federal Reserve.
In 2011, the nomination of now-retired MIT professor and Nobel laureate Peter A. Diamond was blocked by Republicans who questioned his qualifications.
Senate banking committee chairman Richard Shelby, a key opponent of Diamond’s nomination, told Bloomberg News this week that he had concerns about Yellen’s “proclivity to print more money and her record as a bank regulator.”